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Why the Romney/Ryan Tax Plan Can Work

In the debates thus far, one strategy of the Obama/Biden ticket has been to express incredulity that the Romney tax plan can lower rates across the board and keep the share of taxes paid by the wealthy fairly constant while not either requiring huge tax increases on the middle class or further blowing up the deficit.

It reminds me more than a little bit of the years just prior to 1980, when the Carter administration (and the Ford administration earlier) was genuinely befuddled as to what policies could get the economy going again. Eventually, after asking the American people to wear buttons (Ford) and sweaters (Carter), their policy well was dry and they were left with defining down Americans’ expectations of the future.

The reason Obama and Biden are convinced Romney’s tax plan cannot work, beyond political expediency, is that, having failed themselves to grow the economy, they are defining economic growth out of the equation. They’ve forgotten, or hope you’ve forgotten, that the American economy can grow faster. Or, in Romney’s words, that “We don’t have to live like this.”

Increased private sector economic growth is what makes the Romney plan work. Indeed, that’s the whole point of the plan, which economist Harvey Rosen of Princeton University notes:

Relatively little has been said about the possible effects of the Romney proposal on economic growth. This is curious because increasing growth is the motivation for the proposal in the first place.

Rosen has done an analysis of Romney’s tax plan, and he concludes:

. . under plausible assumptions, a proposal along the lines suggested by Governor Romney can both be revenue neutral and keep the net tax burden on high-income individuals about the same. That is, an increase in the tax burden on lower and middle income individuals is not required in order to make the overall plan revenue neutral.

And we get all the benefits of increased economic growth as a result.

As we learned from John F. Kennedy in the 1960s and from Ronald Reagan in the 1980s, the key to economic growth is cutting rates and updating the tax code to reflect today’s economy, rather than the economy of 20 years ago.